Hines sells national building portfolio to CalPERS

Safeco Plaza in downtown Seattle will be under new management next year, as CalPERS, the California pension fund that owns the building, restructures its real estate holdings in an effort to improve performance.

CalPERS ­— the nation’s largest public pension fund with more than $216 billion in assets — is ending its long-term joint venture with Hines, a Texas-based real estate firm, by buying out Hines’ 2 percent equity stake in National Office Partners LP.

The $575 million portfolio includes nine buildings scattered around the country in cities such as San Francisco; Denver; and Austin, Texas, as well as Safeco Plaza in Seattle. This portfolio’s performance has been hobbled by the sharp downturn in the commercial real estate market. According to a CalPERS report, revenue after fees was down nearly 54 percent for the year ending June 30, with total nominal return of just 0.6 percent since inception in 1998.

Earlier this year, U.S. Bank foreclosed on a portion of an office project in Emeryville, Calif., that National Office Partners had purchased in late 2006 for $335 million, and NOP had to sell a Maryland office property at a sizable loss.

The sale and restructuring could allow the new managers to reposition Safeco Plaza as a leading Class A office property, bringing more revenue to its landlord as building owners continue to compete for tenants. It also gives a new out-of-state property management firm, CommonWealth, a toehold in this market, potentially increasing competition among the region’s real estate firms.

National Office Partners bought Safeco Plaza for $162.8 million in April 2005. Located at 1001 Fourth Avenue, the 50-story building has 754,455 square feet of leasable space and is more than 90 percent leased, according to OfficeSpace.com commercial real estate listing site. Major tenants include Safeco Insurance and Bank of America.

The change in management could make the building more competitive, according to Pat McCabe, a vice president in the Seattle office of Jones Lang LaSalle commercial real estate firm.

“It has languished a bit in recent years in the shadow of other Hines-managed buildings and the CommonWealth leadership will breathe new life into the asset,” he said. “This will create a unique opportunity to reintroduce the building to the market. While Hines is an excellent asset manager, CommonWealth’s more nimble approach and fresh thinking should result in 1001 Fourth standing on its own and moving up the food chain among Seattle’s office towers.”

Locally, CommonWealth is hiring eight Hines staffers, including building manager Coleen Spratt, to run Safeco Plaza. CommonWealth declined to comment on its agreement with CalPERS until the deal closes early next year.

Hines spokesman George Lancaster said the decision to wind down the joint venture was “mutual,” and noted Hines and CalPERS are undertaking a new investment venture in Brazil.

For its part, Hines still manages a dozen office properties in the Puget Sound area, which remains a “key market for potential future acquisitions,” Lancaster said. The firm plans to make a “strategic push” into the rebounding multifamily market, Lancaster said.